Play Fair and You Will Win

Sunday Times, It`s My Business 04 Jul 2010 Page 12

Hendri Pelser finds out what business ethics means to SMEs.

With the effects of the global credit crunch still with us, it is pertinent to consider business ethics   the lack thereof helped create the recession.

But how does one approach business ethics  In the academic world, it is a philosophical discipline. For companies, it's often a large volume of rules and regulations.

In the arena of small and medium enterprises, however, it simply comes clown to the way you and your business behave and decision makers face a myriad ethical challenges every clay. These range from the way the tea lady is treated to the nonpayment of suppliers or even bribes and kickbacks.

Where Do We Stand

Over the years, a number of research papers have been written on SMEs and the ethical dilemmas they face. But data is difficult to come by, so it's hard to know what proportion of the sector acts unethically.

In a recent paper published in the African Journal of Business Ethics, researchers Mollie Painter-Morland and Kris Dobie wrote that ethics essentially came down to honest, fair and transparent behaviour by SME decision makers. But in the cut-throat world of business, SMEs are often forced to abandon their ethics and cut corners.

According to the report:  When asked about factors that make ethics difficult, many of the responses indicated that unethical behaviour is often the reaction to an environment in which unethical business practices are widespread.

The existence of systemic corruption in the broader environment in which SMEs operate was consistently highlighted as one of the most serious challenges they face. The most prominent factor that was mentioned was corruption in interactions with government.  The environment might condone corruption, but it's ultimately a personal decision by an entrepreneur whether to remain honest.

Risk Taking

George Nicholls, the chief executive of risk consultancy Pasco, says ethical behaviour comes down to risk management.

Even though corruption goes on, it is ultimately not sustainable,  he says, explaining that bribes eat into profits, compromising competitiveness and sustainability. The decision you make as an SME is whether or not to play in that space,  George says.

The chief executive designate of the Ethics Institute of South Africa, Deon Rossouw, agrees, saying that ethics and sustainability go hand in hand.

You can't deny that there are people our there who get away with unethical behaviour or who got very rich from behaving in an unethical manner.

But the business world has realised that unethical behaviour has a high risk attached to it. The world has not become more ethical, hut the importance thereof has become more prominent.

He explains that ethics in business have been highlighted in a post-Enron world and that most large companies now have ethics programmes and offices. In large businesses, ethics is largely formally managed with an ethics officer, induction programmes and defined rules. This is not the case in an SME. But this does not mean that small businesses do not have ethical standards it is just enforced and promoted more informally, Deon says.

Top Down

Ethics within an SME can be implemented and monitored in a simple, practical manner, as there is much less bureaucracy.

Deon says:  It all starts with the way the business is run internally and how staff are treated. In a small business it can he done simply through a small chat and this will often have a much bigger effect than a large hook of rules.

The corporate culture within a small business is often an extension of the owner's personality and suppliers and customers quickly notice unethical behaviour.

If you treat your suppliers in an unethical manner, you will run into the same problems large businesses run into with their suppliers. The same applies for your customers.  Deon says that research shows a correlation between ethics and the reputation of a business. In the SME world an operation's success is often dependent on its reputation.

You And Your Reputation

If an SME operates in an unethical manner, the backlash is felt very quickly, as opposed to large organisations where it takes a while.  Deon adds that hiding behind clichés such as  it's just business  and  it's a dog-eat-dog world , will not help you for long, as suppliers and customers see a small business and its owner as one and the same.

Public relations expert Jenny Handley agrees: an entrepreneur- s reputation is the tool that builds and sustains a business.

She says:  The best way of marketing your business is by providing a good product or service because your customers will market you.

To sustain a credible business, you need consistency and good ethics.  She says customers are becoming more empowered through the Internet and will bad-mouth your business in an instant.

Online reputation management is a buzz word at the moment. But comments posted online are simply a reflection of your behaviour.  An entrepreneur's reputation is the tool that builds a business Carrot And Stick Then there are the rules and regulations imposed on businesses by government.

Deon explains that in some countries, the immediate reaction to unethical behaviour is another set of rules, such as the Sarbanes-Oxley Act in the US which was passed after the Enron scandal.

Deon says:  You can see ethics as rules and regulations, but you cannot create responsibility through rules.  Carl Stein, a director at Bowman Gilfillan Attorneys and a corporate law specialist, says while South African corporate governance legislation ranks highly internationally, actual behaviour does not reflect the rules in place.

SA business ethics are not very high, in my experience. It is not uncommon for people to go back on their promises because the court process is long and expensive.,, ( an says that while we have laws such as the Companies Act, the Consumer Protection Act and the Competition Act, laws are a reflection of the norms of society: the government was forced by people's behaviour to enact  all this legislation.

Carl, Deon. Jenny and George agree that ethical behaviour in a business starts with the individual heading up an SME.

Deon says:  You need to understand why ethical behaviour is important to you. Not because the rules tell you to behave in a certain way.

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